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Better transit would help fix Canada’s infamous productivity problem

Canada has a well-documented productivity problem. Basically, for the amount of work we put into producing goods and services, our output remains relatively low, especially compared to our American neighbours. To our credit, we work hard, but we’re not very efficient.

The culprit? A lack of innovation for one. We’re not adopting new technologies as quickly as other nations, too complacent with our old software—and our old habits. Essentially, Canada is your friend Jim who just bought his first smartphone last month: a rather late adopter.

Indeed, The Conference Board of Canada gave Canada a “D” in innovation on its latest report card. Our companies are “rarely at the leading edge of new technology and too often find themselves a generation or more behind the productivity growth achieved by global industry leaders,” the report said.

So, how do we get Canada moving? Surely, getting actual Canadians moving would be a start. Better transit systems, meaning more subways and less gridlock, would help remedy one of Canada’s longest-standing points of inferiority.

For one, it would mean companies that use the road, like food services, could make more deliveries in less time—a direct productivity boost. More abstractly, better transit would foster innovation drivers like knowledge spillover and increased competition.

Such were the conclusions of a new CD Howe report released earlier this month, which found that an improved transit system would increase the size of Toronto’s talent pool (you can read my feature here). In short, if people were moving faster, they could commute further and consider jobs that once seemed too far away. Companies would have more applicants to choose from and a better chance at finding the right fit.

Superior transit would also make it easier for people to meet face-to-face; studies show ideas are communicated better in-person. “Phones and video conferencing just do not have the same effect as being able to walk down the hall or quickly drive to talk to you,” explains Ben Dachis, author of the CD Howe report.

Additionally, clustered industries tend to be more competitive. “Increased competition creates an incentive for firms to innovate in order to beat their competitors,” Dachis writes in his report. “High transportation costs raise barriers to entry in potential new markets and could affect the extent of competition.”

There are numbers to back all this up. Dachis looked at empirical studies from around the globe, and found that when you double the size of a talent pool, incomes go up 3% to 8%. He estimates Torontonians would make 3.6% more if we had access to twice as many workers. And like they say in Field of Dreams, if you build subways, they will come—at least, I think that was the quote.

Dachis’s study is far from the only one to acknowledge the relationship between transit and productivity. After reviewing a “considerable body of economic research,” a Canada West Foundation report from February found “a strong connection between investing in public infrastructure and long-term gains in economic productivity.” The Conference Board of Canada said the same thing in a similar briefing: “there is a high degree of interdependence between the quality and quantity of public infrastructure and the performance (productivity) of an economy’s business sector.”

In other words, if Canada is serious about its productivity problem, we need to start spending less time talking about building subways, and more time actually building them.